Exit Tax for Green Card Holders

Long-Term Resident for Expatriation: With the ever-increasing IRS enforcement of offshore accounts compliance and foreign income reporting, the number of U.S. persons seeking to expatriate from the U.S. each year is on the rise. When a person expatriates, they may become subject to an Exit Tax.

The U.S. exit tax is based on whether the filer qualifies as a “covered expatriate,” by meeting one of the three following tests:

Net Worth

Net Income Tax

5-Year Certified Tax non-compliance

To be considered a Covered Expatriate, the filer first must qualify as either a:

U.S. Citizen, or

Legal Permanent Resident who qualifies as Long-Term Residents.

The focus of this article is on the Long-Term Resident for Expatriation analysis.

How is “8 of the last 15 years” calculated?

As with anything associated with international tax, the IRS seems to do their best to make the analysis as complicated as possible.

Common Questions about Long-Term Resident:

When Does Green Card Status Start?

What is a Long-Term Resident

Administrative vs. Judicially vs. Lapse

Exceptions

Let’s explore:

Long-Term Resident for Expatriation: How to Calculate 8-Years

Form 8854 — Long-Term Resident (LTR)

The main tax form for U.S. Citizens and Long-Term Residents to complete at expatriation is the IRS Form 8854.

The definition of long-term resident is summarized well for the instruction of Form 8854 as follows:

“For purposes of this subsection, the term “long-term resident” means any individual (other than a citizen of the United States) who is a lawful permanent resident of the United States in at least 8 taxable years during the period of 15 taxable years ending with the taxable year during which the event described in paragraph (1) occurs.”

What does that Sentence Mean?

Each word may seem simple enough, but when strung together by the IRS, it takes on a whole new meaning:

Lawful Permanent Resident

The key part of this phrase is “Permanent.”

Since it requires “permanency,” that absolves any foreign national who may be considered U.S. persons by way of the Substantial Presence Test from qualifying as a Lawful Permanent Resident.

You are a lawful permanent resident of the United States if you have been given the privilege, according to U.S. immigration laws, of residing permanently in the United States as an immigrant.

Given the Privilege

This is a very important phrase.

Why?

Because there is no reference to the filer having to actually reside in the U.S.

Rather, the filer just has to have been given the privilege to be a permanent resident.

As provided by the IRS:

“You generally have this status if you have been issued an alien registration card, also known as a “green card,” and your green card hasn’t been revoked or judicially or administratively determined to have been abandoned, and you haven’t commenced to be treated as a resident of a foreign country under a tax treaty between the United States and such foreign country.”

You continue to have U.S. resident status, under this test, unless:

You voluntarily renounce and abandon this status in writing to the USCIS,

Your immigrant status is administratively terminated by the USCIS, or

Your immigrant status is judicially terminated by a U.S. federal court.”

This leads to two very important phrases:

Hasn’t Been Revoked or Judicially or Administratively Abandoned

So, not only is there no requirement that a person actually reside in the U.S., but even if you don’t (or if you do), you are stuck with this status until you proactively abandon (such as a Form I-407) or the courts or administrative offices takes it away.

What if I never Renewed The Green Card at Expiration?

This is also a common misconception.

The Green Card is just a “representation” of the LPR status. Just letting it lapse would not be sufficient to show it has been:

Revoked

Judicially Abandoned

Administratively Abandoned

Result: If you want to terminate the LPR status, you must take proactive steps to do so. Generally, filing the USCIS Form I-407 is the simplest way to achieve that goal (for Permanent Residents)

Exception

You aren’t treated as a lawful permanent resident if you commenced to be treated as a resident of a foreign country under a tax treaty, didn’t waive the benefits of such treaty applicable to foreign residents, and notified the IRS of such a position on a Form 8833 attached to a timely filed income tax return.

If you File an 8833 after you meet the LTR status, then that will be considered your expatriation date.

When Does Residence for A Green-Card Holder Begin

As provided by the IRS:

“If you meet the green card test at any time during a calendar year, but do not meet the substantial presence test for that year, your residency starting date is the first day in the calendar year on which you are present in the United States as a lawful permanent resident (the date on which the United States Citizenship and Immigration Services (USCIS) officially approved your petition to become an immigrant).”

*There are some exceptions depending on whether the person was in the U.S. when they received their status, and/or met substantial presence in the current or prior year. But, the baseline perspective is that once you have a Green Card, you are considered a U.S. person.

Full-Year of Residence is Not Required

Green Card status does not require full-year of residence.

Therefore, the inverse would presume a person is considered to a lawful permanent resident in any year they have green card status – and it does not require a full-year of residence.

When does the Status End?

Reverting back to Form 8854 instructions:

“For purposes of this subsection, the term “long-term resident” means any individual (other than a citizen of the United States) who is a lawful permanent resident of the United States in at least 8 taxable years during the period of 15 taxable years ending with the taxable year during which the event described in paragraph (1) occurs.”

Therefore, the last year included in the taxable year, would presume that even a single day in that year would qualify, until the filer voluntary abandonment occurs.

Example

LPR Status Begins: David becomes a Legal Permanent Resident and obtains his Green Card on 3/1/2010. He would be considered to have been an LPR in Year 2010

LPR Status Ends: David Expatriates on 2/1/2018 – ending even occurs. David was still an LPR in 2018, if even for only a few months.

Result: David has been a Legal Permanent Resident in 8 of the last 15 years.

Isn’t it 8-Full Years?

No, presumably not.

Why?

If it did, the language would specify 8 full years, and/or include clarifying language that it is 8 full-years or complete years.

Further, the final year ends in the year the status ends. This is important, because it shows that for the final year to qualify, the language make no reference to a full-year. Rather, it clarifies that the in 8 of the last 15 years, will end in the final year of status lost.

Thus, it would presume even 1-day as an LPR in the final year would qualify as the final.

Likewise, the LPR status would also begin in the year the person receives the Green Card/LPR status.

Therefore, it would appear that if a person had LPR status for a partial introduction first year and partial ending year, these two “years,” would count towards the 8 of 15 years — even if they were not full years.

Golding & Golding: About Our International Tax Law Firm

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.

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Recent Golding & Golding Case Highlights

We represented a client in an 8-figure disclosure that spanned 7 countries.

We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.

We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.

We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.

We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.

How to Hire Experienced Offshore Counsel

Generally, experienced attorneys in this field will have all the following credentials/experience:

20-years experience as a practicing attorney

Extensive litigation, high-stakes audit and trial experience

Board Certified Tax Law Specialist credential

Master’s of Tax Law (LL.M.)

Dually Licensed as an EA (Enrolled Agent) or CPA

Interested in Learning More about Golding & Golding?

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